To maximize their effectiveness, color cases should be printed in color.On July 28, 2002, Bertelsmann announced the firing of its CEO, Thomas Middelhoff, in a move that surprised industry observers, analysts, and many employees. Bertelsmann, a privately held company headquartered in Germany, was one of the largest global media conglomerates, with businesses spanning book publishing, printing, music, and television. Between 1998 and 2002, Middelhoff had initiated a series of strategic initiatives aimed at fostering greater integration among its diverse business units and strengthening their competitive positions, articulated a series of guidelines that would reevaluate Bertelsmann's portfolio mix, and looked to prepare Bertelsmann for a transition to a planned initial public offering in 2005. This case describes these initiatives in detail and the decision of the supervisory board to effect a change in leadership. The new CEO, Gunter Thielen, had to decide whether to effect a fundamental shift in the company's corporate strategy or a more modest reinterpretation of the course charted by Middelhoff. Includes color exhibits.
Swot Analysis of "Bertelsmann AG" written by Bharat N. Anand, Michael G. Rukstad includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Bertelsmann Middelhoff facing as an external strategic factors. Some of the topics covered in Bertelsmann AG case study are - Strategic Management Strategies, Collaboration, Corporate communications, IPO, Leadership, Professional transitions, Strategy execution and Strategy & Execution.
Some of the macro environment factors that can be used to understand the Bertelsmann AG casestudy better are - – increasing government debt because of Covid-19 spendings, digital marketing is dominated by two big players Facebook and Google, increasing household debt because of falling income levels, geopolitical disruptions, banking and financial system is disrupted by Bitcoin and other crypto currencies, wage bills are increasing, challanges to central banks by blockchain based private currencies,
customer relationship management is fast transforming because of increasing concerns over data privacy, increasing transportation and logistics costs, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Bertelsmann AG case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Bertelsmann Middelhoff, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Bertelsmann Middelhoff operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Bertelsmann AG can be done for the following purposes –
1. Strategic planning using facts provided in Bertelsmann AG case study
2. Improving business portfolio management of Bertelsmann Middelhoff
3. Assessing feasibility of the new initiative in Strategy & Execution field.
4. Making a Strategy & Execution topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Bertelsmann Middelhoff
Strengths Bertelsmann AG | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Bertelsmann Middelhoff in Bertelsmann AG Harvard Business Review case study are -
Training and development
– Bertelsmann Middelhoff has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Bertelsmann AG Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Ability to recruit top talent
– Bertelsmann Middelhoff is one of the leading recruiters in the industry. Managers in the Bertelsmann AG are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
High switching costs
– The high switching costs that Bertelsmann Middelhoff has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Successful track record of launching new products
– Bertelsmann Middelhoff has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Bertelsmann Middelhoff has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Digital Transformation in Strategy & Execution segment
- digital transformation varies from industry to industry. For Bertelsmann Middelhoff digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Bertelsmann Middelhoff has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Organizational Resilience of Bertelsmann Middelhoff
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Bertelsmann Middelhoff does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Low bargaining power of suppliers
– Suppliers of Bertelsmann Middelhoff in the sector have low bargaining power. Bertelsmann AG has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Bertelsmann Middelhoff to manage not only supply disruptions but also source products at highly competitive prices.
Strong track record of project management
– Bertelsmann Middelhoff is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Analytics focus
– Bertelsmann Middelhoff is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Bharat N. Anand, Michael G. Rukstad can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Superior customer experience
– The customer experience strategy of Bertelsmann Middelhoff in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
High brand equity
– Bertelsmann Middelhoff has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Bertelsmann Middelhoff to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Learning organization
- Bertelsmann Middelhoff is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Bertelsmann Middelhoff is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Bertelsmann AG Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Weaknesses Bertelsmann AG | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Bertelsmann AG are -
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Bertelsmann Middelhoff supply chain. Even after few cautionary changes mentioned in the HBR case study - Bertelsmann AG, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Bertelsmann Middelhoff vulnerable to further global disruptions in South East Asia.
Skills based hiring
– The stress on hiring functional specialists at Bertelsmann Middelhoff has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Lack of clear differentiation of Bertelsmann Middelhoff products
– To increase the profitability and margins on the products, Bertelsmann Middelhoff needs to provide more differentiated products than what it is currently offering in the marketplace.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Bertelsmann AG, is just above the industry average. Bertelsmann Middelhoff needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
High bargaining power of channel partners
– Because of the regulatory requirements, Bharat N. Anand, Michael G. Rukstad suggests that, Bertelsmann Middelhoff is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Slow to strategic competitive environment developments
– As Bertelsmann AG HBR case study mentions - Bertelsmann Middelhoff takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Bertelsmann AG, it seems that the employees of Bertelsmann Middelhoff don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Workers concerns about automation
– As automation is fast increasing in the segment, Bertelsmann Middelhoff needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
High operating costs
– Compare to the competitors, firm in the HBR case study Bertelsmann AG has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Bertelsmann Middelhoff 's lucrative customers.
Need for greater diversity
– Bertelsmann Middelhoff has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Slow decision making process
– As mentioned earlier in the report, Bertelsmann Middelhoff has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Bertelsmann Middelhoff even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Opportunities Bertelsmann AG | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Bertelsmann AG are -
Manufacturing automation
– Bertelsmann Middelhoff can use the latest technology developments to improve its manufacturing and designing process in Strategy & Execution segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Bertelsmann Middelhoff is facing challenges because of the dominance of functional experts in the organization. Bertelsmann AG case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Better consumer reach
– The expansion of the 5G network will help Bertelsmann Middelhoff to increase its market reach. Bertelsmann Middelhoff will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Creating value in data economy
– The success of analytics program of Bertelsmann Middelhoff has opened avenues for new revenue streams for the organization in the industry. This can help Bertelsmann Middelhoff to build a more holistic ecosystem as suggested in the Bertelsmann AG case study. Bertelsmann Middelhoff can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Loyalty marketing
– Bertelsmann Middelhoff has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Bertelsmann Middelhoff to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Bertelsmann Middelhoff to hire the very best people irrespective of their geographical location.
Leveraging digital technologies
– Bertelsmann Middelhoff can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Bertelsmann Middelhoff can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Low interest rates
– Even though inflation is raising its head in most developed economies, Bertelsmann Middelhoff can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Learning at scale
– Online learning technologies has now opened space for Bertelsmann Middelhoff to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Bertelsmann Middelhoff in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Strategy & Execution segment, and it will provide faster access to the consumers.
Buying journey improvements
– Bertelsmann Middelhoff can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Bertelsmann AG suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Bertelsmann Middelhoff in the consumer business. Now Bertelsmann Middelhoff can target international markets with far fewer capital restrictions requirements than the existing system.
Threats Bertelsmann AG External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Bertelsmann AG are -
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Bertelsmann Middelhoff business can come under increasing regulations regarding data privacy, data security, etc.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Bertelsmann Middelhoff can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Bertelsmann AG .
Stagnating economy with rate increase
– Bertelsmann Middelhoff can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Technology acceleration in Forth Industrial Revolution
– Bertelsmann Middelhoff has witnessed rapid integration of technology during Covid-19 in the Strategy & Execution industry. As one of the leading players in the industry, Bertelsmann Middelhoff needs to keep up with the evolution of technology in the Strategy & Execution sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Bertelsmann Middelhoff.
Increasing wage structure of Bertelsmann Middelhoff
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Bertelsmann Middelhoff.
Shortening product life cycle
– it is one of the major threat that Bertelsmann Middelhoff is facing in Strategy & Execution sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Bertelsmann Middelhoff in the Strategy & Execution industry. The Strategy & Execution industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Bertelsmann Middelhoff with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Environmental challenges
– Bertelsmann Middelhoff needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Bertelsmann Middelhoff can take advantage of this fund but it will also bring new competitors in the Strategy & Execution industry.
High dependence on third party suppliers
– Bertelsmann Middelhoff high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Consumer confidence and its impact on Bertelsmann Middelhoff demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Weighted SWOT Analysis of Bertelsmann AG Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Bertelsmann AG needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Bertelsmann AG is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Bertelsmann AG is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Bertelsmann AG is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Bertelsmann Middelhoff needs to make to build a sustainable competitive advantage.